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COLOMBIA AND LATIN AMERICATHE NEXT GEOPOLITICAL CHALLENGES
Alvaro Uribe Velez
July 2013
TOPICS FOR DISCUSSION
1. The trends that will define our future2. Latin America in a multi-polar world3. The 2013 outlook4. Latin America Urban Challenges5. The Colombian case
1. THE TRENDS THAT WILL DEFINE OUR FUTURE
There are X trends that will shape the global future in the next 20 years…
The global middle class expansion
The rise and flight of the emerging powers
Demography will determine destiny
The pressure for natural resources
1. THE TRENDS THAT WILL DEFINE OUR FUTURE
The global middle class expansion
By 2030 a majority of the world’s population will not be
impoverished, and the growing
middle class will
determine global
consumption patterns
The rise and flight of the emerging powers
Asia will have surpassed North
America and Europe combined in terms
of global power, based upon GDP, population size,
military spending, and technological
investment
China alone will probably have
the largest economy,
surpassing that of the United States a few years before
2030
Demography will determine
destiny
In 2013 the world will have reached
8.1 billion habitants
Aging population,
shrinking young population,
migration and urbanization will
impact world social and economic
performance
The pressure for natural resources
Demand for food, water, and energy will grow by approximately 35, 40, and 50 percent
respectively owing to an increase in the global population
and the consumption patterns of
an expanding middle class
Source: U.S National Intelligence Council
1. THE TRENDS THAT WILL DEFINE OUR FUTURE
By 2050, 19 of the top 30 economies by GDP
will be countries that we currently describe as
‘emerging’
China and India will be the largest and third-largest economies in
the world
Eight countries – India, China, Brazil, Russia,
Indonesia, Korea, Mexico and Turkey – will be
responsible for most of global growth up to 2025
Emerging economies will account for 68% of global growth by
2030
In 1980, 5% of goods were sourced globally. By 2000, this was 20%. By 2025, it will be 50%
In 1980, world exports accounted for one-sixth of global GDP. Today it is
a quarter. By 2030, it will have risen to a third
By 2030 the urban middle class will rise to 42% of the global population. The number of
people with daily income of $10 to $100 a day will rise from 1.8
billion today to 4.9 billion by 2030
Global energy demand rises by over one-third in the
period to 2035, underpinned by rising living standards in China, India &
the Middle East
Iraq accounts for 45% of the growth in global
production to 2035; by the 2030s it becomes the
second-largest global oil exporter, overtaking Russia
By 2035, almost 90% of Middle Eastern oil exports
go to Asia; North America’s emergence as a net
exporter accelerates the eastward shift in trade.
The need for electricity in emerging economies drives
a 70% increase in worldwide demand, with renewable accounting for
half of new global capacity
Electricity prices are set to increase with the highest prices persisting in the
European Union & Japan, well above those in China &
the United States
The energy sector’s water needs are set to grow,
making water an increasingly important
criterion for assessing the viability of energy projects
Two-thirds of the economic potential to
improve energy efficiency remains untapped in the
period to 2035
1. THE TRENDS THAT WILL DEFINE OUR FUTURE
Global energy trends in the next 25 years…
Source: International Energy Agency
1. THE TRENDS THAT WILL DEFINE OUR FUTURE
600 Urban Centers generate 60% of the world’s GDP
20% of the world GDP in 2010 was generated in 187 from North America
In 2010 China’s Metropolitan Areas generated 78% of the Nation GDP
74% of the Latin American and Caribbean population leaves in cities
Towards a urbanized world….
1. THE TRENDS THAT WILL DEFINE OUR FUTURE
From 2010 to 2025, the GDP of the world biggest 600 cities will
rise by over $30 trillion
Over$10 trillion in additional annual
investments needed in cities by 2025
1 billion new consumers in
emerging market cities by 2025
60% of the new urban consumers
will be bases in 440 emerging cities
Annual consumption in Emerging 440
cities is set to rise by $10 trillion by 2025
Cities are expected to need to build floor space
equivalent to 85%of today’s building stock (An area de size of Australia)
Nearly 80 billion cubic meter increase in
municipal water demand expected in the world’s
cities by 2025
Over 2.5 times today’s level of port
infrastructure needed to meet rising container-
shipping demand
How cities will change the world…
2. LATIN AMERICA IN A MULTI-POLAR WORLD
Policy Changes since 1980 match four range of opportunities
Population
Close to 600 million people
Average age between 24
and 28
Per Capita Income in PPP
close to US$10.000
Poverty reduction
64% of our population is a expanding middle class
During the last decade 40 million people have left the poverty line
Life expectancy has increased from 65 to 75 years
Child mortality has been reduced by 50 per cent
Literacy rates are above 94%
Mobile phone penetration has increased by 78 per cent
Internet access has increased by 33%
Healthcare coverage has increased by 50 percent
water and sanitation coverage has reached 80%
Commodities in time of Demand
10 percent of the World oil reserves
6 percent of the World gas reserves Almost 50 percent
of the World cooper reserves
50 per cent of the World silver
reserves 13% of the World
iron reserves
26% of the World fertile land
24% of the World beef supply
Bio Reserves
20 per cent of the World
Biodiversity is concentrated in
the Amazon ring
Almost 50% of the World
potable water supply
57% of the world primary
forest
2. LATIN AMERICA IN A MULTI-POLAR WORLD
The strengthening of Liberal Democracy
The adoption of an
institutional Framework in
favor of foreign and
national investment
The construction of a sound
and sustainable social safety
net
The expansion of
export markets and
the commercial integration
with the World (FTA’s) A public
administration driven by
results
A sound Macroecono
mic Administration driven by fiscal and monetary prudence
Better regulatory
environment
Construction of strategic infrastructur
eThe
consolidation of an
innovation agenda
leaded by an improvement in education
A well capitalized financial
sector and the constant expansion of
financial services
The change process is a consequence of the consistency, congruence and sense of urgency that a group of countries have adopted as their policy cornerstone. Brazil, Mexico, Colombia, Chile, Peru and Uruguay represent 70 per cent of the region’s population and 75% of the regional GDP.
Today countries like Panama, Dominican Republic, Costa Rica, Salvador, Guatemala, Honduras, Paraguay, as well as most of the Caribbean States, are following that line of behavior
2. LATIN AMERICA IN A MULTI-POLAR WORLD
The regional current Political Map is a “Tale of two cities” like the Charles Dickens Book… (The ALBA and the non Alba Model)ALBA
(Leaders: Venezuela, Ecuador,
Bolivia, Nicaragua and Cuba)
Modern Democratic Center Countries (Brazil, Colombia,
Peru, Chile, México, Uruguay, Paraguay, Panamá, Republic Dominican, Costa
Rica, etc)
Cooperation with the U.S.
Pro Free Trade
Investment Confidence
Independent Institutions
Political Stability
State Long Term Policies and Mgt by Results
Organized Party Systems
The Democratic Center takes the lead: • Investment grade countries are in this Group: Mexico, Brazil, Chile, Colombia, Peru and Panama• Countries with more market access through FTA’S are in this group• Countries with more FDI are in this group• Countries with more Middle Class Expansion are in this group• Better fiscally sustainable social programs: Chile, Mexico, Brasil and Colombia
Only the group of Countries in the Democratic Center will become the regional active participants of the Emerging Markets Boom…some of the ALBA Members will see some benefits, but without solid long term development agendas, they will face transitory profits…
But not all the socio-economic models are a success story…
3. THE 2013 OUTLOOK
After decelerating for two consecutive years, Latin
American economies accelerated growth again at the end of 2012. Brazil’s recovery was an engine of performance
The region’s growth averaged around 3.2% in 2012 after 4.3% in 2011 and 6% in 2010
Latin America will approach its potential rate in 2013,
remaining the world's second best performing
region after Asia
Chile reported lower annual growth, although the economy reaccelerated to rates higher
than its long- term trend because of expansionary
monetary conditions
Colombia’s growth was below government
expectations reaching a 3.5% level
Due to the political transition, which generates temporary contractions the Mexican
economy began decelerating in the second half of the year
Brazil became the main contributor to Latin America’s growth
reduction in the past two years
Inflation was maintained on target with the
excepctions of Mexico and Brazil, that experienced
marginal increases
The 2012 experience….
3. THE 2013 OUTLOOK
Argentina
The country will face risks in 2013, although growth will improve in comparison with 2012
Uncertainty will increase
Inflation will be around 25%
Public expenditure will be the driver of economic growth
Central Bank will continue to be the main source of funding for the Central Government
Economy will grow 3.4% in 2013
Brazil
The economy experienced a small scale recovery at the
end of 2012
The recovery will strengthen in 2013, boosted by investment for the 2014 World Cup, as well as the fiscal and monetary stimulus package in place
The economy will grow 5% in 2013
Chile
Monetary conditions need to be stabilized before excess demand
threatens economic stability
Growth in 2013 will be around 4.3%
Inflation will remain on target
Source: World Bank
3. THE 2013 OUTLOOK
Mexico
The deceleration initiated at the end of 2012 will extend over the first half of 2013, as a change in political administration usually introduces a delay in the federal budget and private decisions on investment
The economy will grow only 3.5% in 2013 after 3.8% in 2012
Inflation is rising
Monetary tightening could affect growth performance
Great expectations are based on the new government reform agenda
Peru
The best performer with strong fundamentals and a well managed mining boom
Growth will reach 5.8% in 2013
Inflation will be between 1% and 3%
Venezuela
The fiscal deficit in 2012 reached troublesome levels, that will require
cuts in 2013
Growth will be around 1.5% and 2%
Declines in the oil price could trigger a recession
Inflation will reach 30%Source: World Bank
2009 2010 2011 2012e 2013f 2014f 2015f
Financial Flows
Capital Inflows 179.6 328.5 303.9 322.4 326.2 327.1 342.3
Private inflows, net 161.6 306.1 299.1 320.5 327.1 327.8 344.7
Equity Inflows, net 126.5 166.6 165.6 179.5 198.0 200.8 214.5
FDI inflows 84.9 125.3 158.3 167.3 182.4 176.3 184.2
Portfolio equity inflows 41.6 41.3 7.4 12.2 15.6 24.5 30.3
Private creditors, net 35.1 139.5 133.4 141.0 129.1 127.0 130.2
Bonds 45.9 72.9 85.2 95.1 72.2 57.7 60.2
Banks -1.7 21.7 51.7 41.4 42.7 45.2 51.4
Short-term debt flows -8.6 43.8 -3.0 4.3 12.7 23.4 16.5
Other private -0.5 1.1 -0.4 0.2 1.5 0.7 2.1
Offical inflows, net 18.0 22.5 4.8 1.9 -0.9 -0.7 -2.4
World Bank 6.6 8.3 -2.9 0.4 .. .. ..
IMF 0.4 1.3 0.2 0.1 .. .. ..
Other official 11.0 12.9 7.5 1.4 .. .. ..
3. THE 2013 OUTLOOK
Regional Financial Flows
Venezuela
InflationReduction in oil
production
Brain drain
Social conflict
InsecurityPrivate initiative in
Jeopardy
Bolivia
Loss of citizen support
Quality of live deterioration
Lack of private initiative
Loss in private investment
Ecuador
Press Liberties in danger
Lack of long term private
investment
Political stability at the expense of higher tensions
Oil driven political power
Nicaragua
Institutional deterioration (Reelection without
constitutional authority)
Corruption
Private initiative: Uncertainty
Shameful Chavistas
Bad policies are deteriorating the political and economic context in the ALBA Countries….
3. THE 2013 OUTLOOK
Building Modern
Democracies (5 parameters)
Security
Freedoms and Private Initiative
Independent Institutions
Social Cohesion
People Participation
A dynamic Economic
transformation
Investment Target Policies
Maintaining Fiscal and Monetary
transformation
Integrate commodity and knowledge based
economies
Expand export markets
Create an Entrepreneurship culture
(Innovation agenda)
Closing Social Gaps
Improve education (quality, coverage,
vocational)
Insure Universal Healthcare
Formal Job creation
Access to Finance
Climate Change,
Environment and Energy
SustainabilityExpand renewable
sources
Install an energy efficiency conscience
Improve waste management
Protect the Amazon Ring
Reduce Co2 Emissions
Despite the changes that have been achieved some important challenges remain…
3. THE 2013 OUTLOOK
The region top challenges
THE BIG 4 BIG CHALLENGES…
Security
Transportation
Business Climate
Environmental Quality
The right mix of goals in Latin American Cities
4. LATIN AMERICA’S URBAN CHALLENGES
SECURITYCity Country Homicides Rate per 100K
San Pedro Sula Honduras 1.143 158
Juarez Mexico 1.974 147
Maceio Brazil 1.564 135
Acapulco Mexico 1.029 127
Tegucigalpa Honduras 1.123 99
Caracas Venezuela 3.164 98
Torreon Mexico 990 87
Chihuahua Mexico 690 82
Guatemala Guatemala 2.248 74
San Salvador Salvador 1.343 58
Ciudad de Panamá Panamá 543 31
Medellin Colombia 1.624 70
Cali Colombia 1.720 77
Bogota Colombia 1.387 19
4. LATIN AMERICA’S URBAN CHALLENGES
SECURITY
Prevention
Education
Youth Employment
Citizen Participation
Social Programs
Social inclusion
Sanction
Intelligence
Man Power
Technology
Risk Mapping
Effective Judicial Systems
Technology
Call Centers
City Cameras
Rapid Response Tracking
Criminal Databases
Crime Scene Profiling
CSI
Communitary Support
Informants
Neighborhood Councils
Prompt denounceme
nts
Policy framework…
4. LATIN AMERICA’S URBAN CHALLENGES
TRANSPORTATION
1. Buenos Aires receives 1.4 million cars per day
2. Bogota has one million cars and 400.000 on average circulate every day
3. In Sao Paulo people who drive lose almost 3 ours in one of the many 100km traffic jams the city faces every day
4. The increase in per capita income has triggered the most rapid demand for cars in our region recent history
City Cars Motorcycle Taxis
Bogota 792.000 116.000 49.000
Buenos Aires
4.285.000 470.000 45.000
Caracas 820.000 114.000 12.400
Mexico City
5.592.000 108.420 182.000
Sao Paulo 4.386.000 652.000 38.639
Lima 453.000 27.000 81.826
Key Figures 2007 (Source CAF 2009-2010)
4. LATIN AMERICA’S URBAN CHALLENGES
TRANSPORTATION
Policy Actions
Integrated Massive Transportation
Systems
Reduce daily car circulation
Promote Car Pooling
Toll Roads for Rapid AccessExpand metro-
linesImprove urban
planning promoting functional districts
Policy framework…
4. LATIN AMERICA’S URBAN CHALLENGES
BUSINESS CLIMATE
Country DB 2011 DB 2010 DB 2012
Mexico 35 41 48
Peru 36 46 43
Colombia 39 38 45
Chile 43 53 37
Argentina 115 113 124
Uruguay 124 122 89
Ecuador 130 127 139
Brazil 127 124 130
Venezuela
172 170 180
1. Countries are measured by their capacity to create an adequate environment for doing business
2. Cities thus are the true epicenter of economic activity, requiring the right institutions to guarantee a competitive development of private initiative
3. The World Bank Doing Business report represents a good instrument of measurement
4. LATIN AMERICA’S URBAN CHALLENGES
BUSINESS CLIMATE
Indicator Brazil Chile Mexico Colombia Peru Venezuela
Starting a Business
(Proceadures)
13 8 6 9 6 17
Starting a Business (Days)
119 22 9 14 27 141
Days for Construction
Permits
411 155 105 50 188 395
Hours devoted to pay taxes (Hours
per year)
2.600 316 404 208 380 864
Days to enforce a contract
616 480 415 1.346 428 510
Enforcing Contracts (Cost
% Claim)
16.5 28.6 32 47.9 35.7 43.7
Cost to export US$ per
Container
US$1.730 US$745 US$1.420 US$1.770 US$860 US$2.590
The regional challenge to improve our business climate
4. LATIN AMERICA’S URBAN CHALLENGES
BUSINESS CLIMATE
Cutting Red Tape
Simplifying procedures
Online services
Expedite Business
registration
Expedite contractual
judicial execution
Entrepreneurial Spirit
Incentives for starting a business.
Access to credit
Tax compliance simplification
Bankruptcy legislation
Investor Protection
Legal stability
Security
Zero tolerance with corruption
Incentives
Infrastructure
Energy
Roads
Water and sanitation
High Quality Utilities
Broad Band
Human Capital
Access to tertiary
education
Proficiency in math and science
Bilingual professionals
High Quality Universities
Policy framework…
4. LATIN AMERICA’S URBAN CHALLENGES
ENVIRONMENTAL QUALITYLatin American Green City Index
Nine of 17 cities derive more than
80% of their electrical energy from
renewable sources
Often those cities with the most
renewable energy tend to have the weakest climate
change policies. Of the nine cities with
over 80% renewable energy, only three score better than
average in this Index category
Only nine cites have full or partial eco-
building standards. Just five have full
regulations in place to motivate
households and business to lower their energy use
Only four fully promote citizen
awareness on ways to improve the energy-
efficiency of buildings
According to official data, fourteen cities collect and dispose over 95% of waste, and for eight cities the figure is 100%
Waste generated per person, at an Index
average of 465 kg per year, is noticeably
lower than the figure in last year’s
European Green City Index, at 511 kg per
year
On average 94% of residents in cities in
the Index have access to sanitation, and for 13 cities the figure is over 90%
Wastewater treatment, on the other hand, is very
poor. On average only 52% of wastewater is treated, and eight of 17 cities treat less
than half their water. Two treat none
4. LATIN AMERICA’S URBAN CHALLENGES
ENVIRONMENTAL QUALITY
Policy Framework
Energy • Efficiency• Energy
Matrix in favor of renewable energy.
• New building codes
Emissions• CO2
reduction targets
• Air Quality norms
• Transportation Standards
• Greener Vehicles
Waste Management.• Better
Standards• Improveme
nt of collection techniques
• Capture and energy use of methane gases
Water and Sanitation• Better service
provision• Resolve
coverage for low income informal settlements.
• High technology in residual water treatments
Environmental Governance• Better
statistical information
• High technical personnel
• International Best practices in policy design
Land use• Orderly
planned expansion
• Utilities coverage
• Prevent informal settlements
• Land titles policies
Policy framework…
4. LATIN AMERICA’S URBAN CHALLENGES
Security
28.837 homicides
2.882 kidnappings
69 homicides per 100.000 habitants
1.645 terrorist attacks
350 mayors out of their municipalities
158 municipalities without police
Economy
Average Economic Growth 1994-2001: 2.1%
GDP per Capita: US$2377
Investment as % of GDP: 16.5%
Exports: US$11.975 million
FDI: US$2.100 million
Inflation: 6.99%
Fiscal balance: -3.2%
Social
Unemployment: 16.2%
Health Coverage: 25 million Colombians
Pension affiliates: 4.5 million
Poverty: 57%
Education Coverage: Primary 97%, High school: 57%, University: 24%
Mobil Phone Lines: 4.6 million
Internet coverage: 1.9 million
Eleven years ago Colombia was a fragile state…The Colombian Paradox: a long and stable democracy in a permanent threat from
terrorist groups, drug dealers and organized crime…
5. THE COLOMBIAN CASE: NO LOST CAUSES
WE INTRODUCED A COMPREHENSIVE POLICY FRAMEWORK…
Social Cohesion
Investment with fraternity
Democratic Security
Confidence
Security as a Democratic Value
Security
for all
Confront all
criminal organiza
tions
Security without martial
law
Security with
freedoms and human
rights protection
Security in
coordination with
the people
Investment Target
Security:HumanLegal
Political
Sound Macroeco
nomics
Incentives
Access to markets
Competitiveness factors:• Infrastr
ucture• Regulat
ion• Connect
ivity• Logistic
al chain
Social Cohesion
Highest quality in education
Universal
healthcare
Access to
Finance
Stable Jobs and
entrepreneurial spirit
Connectivity
5. THE COLOMBIAN CASE: NO LOST CAUSES
OUR POLICY ACHIEVEMENTS GENERATED A TURNING POINT
Indicator 2002 2010
Homicides 28.838 7.400
Kidnappings 2.882 123
Homicides per 100K Habitants
69 16.3
Terrorist attacks
1.645 250
Municipalities without mayors
presence
350 0
Municipalities without police
158 0
Indicator 2002 2010
Average Economic Growth
2.1% 4.3%
GDP per Capita
2377 5300
Invest % GDP 16.5% 24.6%
Exports US$11.000
US$ 39.000
FDI US$2.100
US$ 7.000
Inflation 6.9% 2.5%
Indicator 2002 2010
Unemployment 16.2% 11.6%
Health Coverage 25.1 million
43.1 million
Pension affiliates 4.5 million
7.1 million
Poverty 57% 38%
Education coverage
(Primary, Hs, University)
97%57%24%
100%79.4%35.5%
Mobile phone users
4.6 million lines
41 million lines
• Reached the highest economic growth in more than 20 years
• The largest education, health and connectivity coverage in its history
• The largest poverty reduction in Colombian history
• The biggest FDI rates in history• The lowest violence records in 30
years
• Expanded the middle class• Highest exports in
Colombian History• Paramilitary groups
dismantled• FARC structure severely
dismantled• Per Capita income more
than doubled
5. THE COLOMBIAN CASE: NO LOST CAUSES
Structural Elements
Political Stability
Sound Macroeconomic Management
Human, Political and Legal Security
Competitive elements
Investment incentives
Access to markets (Canada, EU, EEUU, MERCOSUR, etc.)
Free Trade Zones
Logistical advantages
Legal stability agreements
Comparative elements
Investment Grade
Stable institutions
Growing internal demand
Complementary
Human Capital
New World Class Sectors incentives
Strong financial system
We made Colombia a viable country for FDI due to a multiplicity of factors…
5. THE COLOMBIAN CASE: NO LOST CAUSES
In 2002 it was believed that by 2009 Colombia oil production will not
be able to attend national demand
In 2003 the oil and gas sector
restructuring was designed
ECOPETROL undertook a strategy shift to become a more competitive and professional corporation
The National Hydrocarbon Agency was
created
Between 2002 and 2010 341 exploration
and production contracts were signed
In 2007 ECOPETROL was capitalized by 10%
through local capital markets. 486.000
Colombians bought shares
Between 2002 and May 2010 447 new fields were explored
From 2002 to 2010 successful
exploration passed from 40% to 61.4%
Seismic exploration in the country (Onshore,
Offshore and 2 dimensions) increased
by more than 250%
Colombia is currently close to produce 1 million oil barrels per day
Success triggers
Security: Investment, exploration
Government Reform: New ECOPETROL and
ANH
Investment target policies: New players and new exploration
and production contracts
The case of the oil sector in Colombia: Change is possible
5. THE COLOMBIAN CASE: NO LOST CAUSES
Colombia has 2 billion barrels of
proven oil reserves
Colombia reached 1 million barrels per day in
2012
Colombia consumes
298.000 barrels per day
The USA is Colombia’s mayor
oil export destination
Colombia has 4.7 trillion cubic feet of Natural Gas
Reserves
Colombia has 5643 million short tons of
recoverable coal reserves, the largest in
South America
Colombia produces approximately 82 million short tons,
while only consuming 5.6 million short tons.
5. THE COLOMBIAN CASE: NO LOST CAUSES
Key elements in Colombia’s energy outlook
Security
Maintain Macro-Vision and Micro-
Management
Continue dismantling all
terrorist organizations
Continue dismantling drug cartels apparatus
Strengthen Citizen Security agendas
with local authorities
Economic
Face new trends of currency
appreciation
Maintain and increase FDI flows (Security, incentives
and stability rules)
Fiscal Policy to face new countercyclical
challenges
Increase tax collections
Expand new trade markets through
FTA’s
Social Cohesion
Fight labor informality and
create quality jobs
Insure education and health quality
Expand vocational
training coverage
Create Entrepreneurial Family Transfers
program
Political
Judicial reform
Strengthen Democratic Center
Improve local institutional
capacity
New law implementation
(Victims and land)
Prevent the emergence of
populist movements
5. THE COLOMBIAN CASE: NO LOST CAUSES
Colombia current challenges
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